Trust 101 Series: How a Trust Works.
Learn the impact critical people can have in starting and keeping a trust operational in your estate plan.
Why is it important to know how a trust works? You get the foundation to learn if this is a tool you can use now or in the future. In this post, we’ll cover the people that ensure the plans created stay working—coming from the perspective of using a revocable trust.
Sometimes analogies help to explain concepts. Here, I find it helpful to use the terms of a business as an analogy.
Trust = Company
Formation of the trust is the first step. Just like you must have legal documents for your business, the same must happen with creating a trust. The trust must be in writing to avoid any confusion and ambiguity.
Settlor = You as Owner
The person who creates the trust is the settlor, YOU. There can be more than one settlor; for example, a married couple could jointly create a trust.
Trustee = You as President & Manager
In most cases, the owner of a business is also the president. It works the same as with a trust. As Trustee, you are the legal owner of the assets held in the trust and the responsibility for managing those assets.
Successor Trustee = Vice President
The Successor Trustee only steps in when the Trustee, you, cannot fulfill the duties of managing the trust due to death or incapacity. They are to administer the terms of the trust as written by the owner, again you. The Successor Trustee does not have the power to make changes, amend, or dissolve the trust (unless under particular circumstances).
Beneficiary = You (until death)
As owner and manager, you are also the beneficiary. You have the right to remove, add, or change assets in the trust. You also can dissolve the trust.
Contingent Beneficiaries = Shareholders (after you die)
Contingent Beneficiaries only receive assets after the Beneficiary is deceased. At this point, the Successor Trustee would step into your shoes and administer the trust as written to those you have named; the named individuals or institutions are the contingent beneficiaries.
Terms of Trust = The Bylaws.
These are the “rules” that the Successor Trustee must follow. The “rules” are directions or plans designed by you, the Settlor, for your Beneficiaries and Contingent Beneficiaries.
I like to keep things as simple as possible. The picture below shows how everyone comes together for the trust plan. You design your box, select your trusted individuals and beneficiaries, put your assets into the box, and you have your trust.
Now that you have more information about the inner workings, is it time to have a part in the generational wealth you envision?
If you are ready to get your estate plan started or need more information, schedule a discovery call with me. Where you and I dive a little deeper into your situation to discover the plan that fits you.
~ Tenicia Moulden
Moulden Law Blog is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site, you understand that there is no attorney-client relationship between you and Moulden Law. Moulden Law should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
